Home Building Amendments Act 2014: Changes to the Statutory Warranties and the Compulsory Insurance Scheme.
What it means for Real Estate Agents, property owners and investors.
The Home Building Amendment Act 2014, received Royal Assent and was passed by New South Wales Parliament on 5 June 2014 and the majority of the amendments will now commence 15 January 2015 and further amendments concerning building contract requirements will commence on 1 March 2015 as published in the Commencement Proclamation on the Government Legislation website on 12 December 2014.
The amendments to commence on 15 January 2015 will affect licensing and unlicensed contracting, home warranty insurance, owner builders, statutory warranties and residential sale contracts.
The threshold for requiring a licence for building and general trade is increased from $1,000 to $5,000 (including labour and materials). Specialist work, such as plumbing, electrical and air-conditioning, will still require a licence regardless of the cost of the work.
Up to 12 months in prison will be a new sentence for a second or subsequent offence for unlicensed contracting or not having the required insurance.
Property owners and Real Estate Agents should always ensure they use appropriate licensed contractors.
The Compulsory Insurance Scheme
The compulsory insurance previously known as Home Warranty Insurance, will now be known as ‘Insurance Under the Home Building Compensation Fund’ (IUHBCF).
The insurance continues to be mandatory in respect of most residential building work with a contract price or market value of $20,000 or more. There is a new exception for work that consists only of built-in furniture and cabinetry work, including kitchen cabinetry, under Regulation 56.
The indemnity under the Insurance was previously only available upon the death, disappearance, or insolvency of the builder, and suspension of contractor’s licence. This will be extended to include where the contractor was a partnership and any of the partners become insolvent.
The multi-storey exemption from the requirement to have the insurance survives and is widened. It continues to apply to buildings that have a rise in stories of more than three and consist of two or more separate dwellings. However, the definition of ‘storey’ has changed and the calculation no longer includes a storey which if the space includes accommodation only intended for vehicles. This means the definition of ‘rise in stories’ is the same as that in the Australian Building Code. Good news for developers and builders but not so good for investors and home owners, as it increases the application of the exemption for multi-level developments.
Purchasers should ensure they have the IUHBCF for the correct number of stories when purchasing property off the plan.
Forged home warranty insurance certificates have caused considerable problems for home owners so they have now included a register of insurance particulars to be maintained by the Office of Finance and Services for insurance certificates issued for contracts entered into on or after 1 July 2010. This will include the details of the builder, the site and any successful claims on the insurance policies and the amounts of those claims.
Once the register is in place, a beneficiary or purchaser’s solicitor should search the register before a purchaser exchanges on a Contract for Sale and Purchase of Land.
Homeowners will only need an Owner Builders licence for work worth $10,000 or more which is an increase from the current $5,000.
From the proclamation date, Owner Builders will no longer be required to take out IUHBCF. However contractors who perform work for Owner Builders will need to take out IUHBCF for work over $20,000.
Certain works are to be excluded from the operation of the Home Building Act 1989 for homeowners such as ornamental ponds and water features and other structural ornamentation, cleaning work, fencing work, and internal painting.
Even though Owner Builders do not require the IUHBCF, they should note that if they property sold within the warranty period, the Contract for Sale and Purchase of Land must clearly state there is no statutory insurance on the property.
Contracts for Sale and Purchase of Land by Owner Builders
The amendments require that a Vendor of land in respect of which an owner builder permit was issued within seven years and six months, including work relating to part of premises only, must include a new consumer warning, where the reasonable market cost of the labour and materials involved is $20,000 or more.
The warning must state:
- That an owner-builder permit issued in relation to the land (and specify the date it issued); and
- That work done under an owner-builder permit is not required to be insured under the Home Building Act (unless done by a contractor to the owner-builder)
Failure to include the warning will make the Contract for Sale and Purchase of Land voidable at the option of the purchaser, before completion of the Contract. Penalties apply for failure to include the above warning in the Contract for Sale of Land with fines of $110,000 for Corporations and $22,000 for individuals.
Therefore a Real Estate Agent and a Vendor’s solicitor will need to make the appropriate enquiries of the Vendor and ensure the above warning is included in the Contract for Sale and Purchase of Land if necessary, and to ensure a Purchaser cannot get out of the Contract.
The warranties implied by the Home Building Act 1989 into the Contract for Sale and Purchase of Land will change slightly and the phrase “performed in a proper and workmanlike manner” will change to:
‘A warranty that the work performed with due care and skill and in accordance with the plans and specifications set out in the contract.”
The amendment essentially has the same effect, and is now aligned with legislation used in other states and territories.
The distinction between structural and non-structural defects will be abolished. In its place is a warranty period of six (6) years from the date of completion for breach of statutory warranty that results in a major defect or two (2) years in respect of any other case. A major defect is:
- A defect in a major element of the building, AND
- Prevents all or part of the building from being lived in or used or its intended purpose OR threaten the collapse or destruction of the building or part of it.
As a result a great number of defects that were previously covered by the six (6) year warranty will now only be covered for two (2) years.
A person enforcing a statutory warranty will have to notify the builder in writing within six (6) months of the breach becoming apparent. An Owner will be considered to be aware of a defect when the Owners Corporation becomes aware of or ought reasonably have become aware of the breach.
We also note the builder must not be unreasonably refused access for the purpose of or in connection with the rectifying breach.
This means for Purchaser’s buying off the plan, they should always do a pre-settlement building inspection and notify the builder of the defect immediately where possible and within six (6) months of the inspection, and the Purchaser and/or inspector needs to be careful about the classification of a defect as a major defect or otherwise.
An expiry date for statutory warranties is determined by reference to the date by which the works were complete. The definition of completion for strata buildings will change so that completion occurs on the issue of an Occupation Certificate allowing the whole building to be used and occupied. So we note there may be more than one date where the strata scheme involves more than one building/Occupation Certificate.
This means that the new definition will apply to any works which are not as yet completed for new strata buildings and are completed after 15 January 2015.
Owner’s Corporations should therefore also conduct a full inspection of units, where applicable, and the common property and advise the builder within six (6) months of the inspection, and notify the Owners accordingly.
Real Estate Agents that are Property Managers or Strata Managers need to be aware of the above changes and timeframes when dealing with new strata developments.
Further amendments to the Home Building Act 1989 include new requirements for Building Contracts however we have not covered these changes here.
Disclaimer: The information in this article is correct as at 13 January 2015. This information is not to be taken as legal advice and at all times we recommend you seek independent legal advice regarding your own individual circumstances from your legal representative.
For further information, please contact:
Elizabeth Pecipajkovski Solicitor Phone: (02) 9267 6263 Email: Elizabeth@jemfish.com.au
Greg Jemmeson Partner Phone: (02) 9267 6263 Email: Greg@jemfish.com.au